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Abstract:
In antitrust enforcement, in the context of cost-benefit analysis, neoclassical economics may be interpreted as arguing for the use of a total welfare standard whose implementation treats transfers as welfare-neutral. Several recent papers call for antitrust agencies to move in the direction of this version of a total welfare standard for enforcement. However, as Oliver Williamson noted in his 1968 paper, horizontal mergers typically result in transfers that may greatly exceed in magnitude any dead-weight loss or efficiency gain, so that a decision to ignore transfers may be quite important. In this paper, I argue that such transfers are likely overall to be quite regressive, and thus that a consumer surplus standard rather than a total welfare standard may be appropriate for antitrust. Two common arguments against this standard that most mergers are in markets for intermediate goods, and that a consumer welfare standard implies a tolerance for monopoly are examined and found wanting. I argue in addition that, even if a total welfare standard is used, both the finance literature on merger outcomes and the structure of the U.S. enforcement agencies suggest that the use of a consumer surplus standard by the agencies is more likely to achieve that goal.

antitrust, enforcement, welfare standards, consumer surplus, total welfare, horizontal mergers, competition law, competition policy

Abstract:
In antitrust enforcement as in cost-benefit analysis, neoclassical economics may be interpreted as arguing for the use of a "total welfare" standard whose implementation treats transfers as welfare-neutral. Several recent papers call for antitrust agencies to move in the direction of this version of a total welfare standard for enforcement. However, as Williamson (1968) noted, horizontal mergers typically result in transfers that may greatly exceed in magnitude any deadweight loss or efficiency gain, so that a decision to ignore transfers may be quite important. I argue that such transfers are likely overall to be quite regressive, and thus that a consumer surplus standard rather than a total welfare standard may be appropriate for antitrust. Two common arguments against this standard - that most mergers are in markets for intermediate goods, and that a consumer welfare standard implies a tolerance for monopsony - are examined and found wanting. I argue in addition that, even if a total welfare standard is used, both the finance literature on merger outcomes and the structure of the U.S. enforcement agencies suggest that the use of a consumer surplus standard by the agencies is more likely to achieve that goal.

Abstract:
One important determinant of the speed and success of transition will be the efficiency of transformation and development of the infrastructure sectors. A great deal of attention has been paid to issues such as privatisation, restructuring, user prices, and terms of access in these sectors, regarding both developed and developing countries. Some issues regarding vertical restructuring are notable in the degree to which in different sectors and in different locations they raise similar questions that may have very different answers. This paper suggests a framework for answering such questions and seeks to apply it to the railroad, electricity, and telecommunications sectors in Russia, Lithuania, Romania, and Poland.

Vertical restructuring, competition, regulation, infrastructure, transition.

Abstract:
A variety of Proposals for creating more competition within the railroad sector and in the broader freight transport sector are under consideration in countries throughout the world. Brazil, though something of a latecomer to wider infrastructure reform, has recently taken large steps in restructuring its railroad system. This paper analyzes Brazil's ongoing railroad reforms, seeking to place them in the context both of the broader reform project going on in Brazil and of railroad reforms taking place in developing and developed countries worldwide.

Regulatory reform, privatization, railway, developing countries, Latin America, Brazil

Abstract:
One of the key determinants of China's ability to continue its economic growth into the 21stcentury and to distribute the benefits of that growth to a broad spectrum of the population will be the further development of its railroad system. This paper examines the possibilities for improving the performance and increasing the capacity of China's railroad system through the introduction of competition. Countries throughout the world are in the process of abandoning the centralized, monopoly, state-owned model of the railway in favor of models that create competition. However, different competitive models have been proposed and are being tried out. This paper discusses the reform experience with the two basic models and their variations, focusing especially on some of the operational and regulatory challenges that vertical separation is now better understood to impose. It seeks to apply the lessons of the experience to date to the situation of China, where -- unlike in many countries, developing and developed -- one important criteria for choosing a reform model is its ability to provide the incentives for appropriate levels of new investment to be undertaken at the appropriate locations. The paper closes with the presentation of one possible reform model for the Chinese rail system, a model that maintains vertical integration while creating competition for shippers at many important origin and destination points.

China, railroad, infrastructure, reform, restructuring, competition

Abstract:
Fifteen years ago, when economic reformers were writing and enacting competition laws in the transition economies of Central and Eastern Europe, some critics warned that such laws, or too stringent enforcement of such laws, carried the danger of discouraging competitive behavior and the development of markets. An examination of the enforcement experience with the abuse-of-dominance provisions of the laws of eleven countries over two separate time periods suggests that the feared evils have not materialized. Two patterns stand out in this enforcement experience: first, the number of findings of abuse of dominance has been very small in countries other than Poland, and second, a large and growing proportion of these findings of abuse have been in sectors that would in developed market economies be subject to economic regulation.

Antitrust, competition, regulation, abuse of a dominant position, transition, Central and Eastern Europe

Abstract:
The Russian Federation has begun the restructuring of its electricity sector, following the now standard restructuring model of complete vertical separation of generation from transmission, with the aim of creating competition in regional wholesale generation markets. This paper examines the structure of the six principal regional generation markets that are in their early stages of development and argues that they are likely to be characterized by high levels of market power on the part of individual privatized generation companies, especially during the peak winter demand season. These levels - considerably higher than those that caused competitive problems in California - seem to create a serious risk of price spikes in deregulated wholesale electricity markets, and thus of significant price increases to consumers of electricity.

Russia, electricity, restructuring, vertical separation, competition, market power

Abstract:
The freight railways sector has three attributes that have proved problematic for recent experiments with vertical separation: a) a relatively high share of network costs in total delivered service costs, b) an apparent persistence of economies of scale at the "competitive" train operations level, and, perhaps most important, c) strong economies of vertical integration that are focused on the interface point of wheel and rail - i.e., exactly where vertical separation takes place. The third factor in particular seems a clear illustration of the rationales discussed by Coase and Williamson for the broad vertical scope of a single firm and the disadvantages of relying on market transactions under certain conditions.

Railways, competition, regulation, restructuring, vertical separation, vertical integration, transactions costs, Coase, Williamson

Abstract:
The setting of user prices for enterprises with large fixed costs and marginal costs below average costs - "natural monopolies" - raises important policy questions regarding both efficiency and equity. It has become well accepted among economists that, in a variety of settings, welfare may be improved if such prices are set using systems that are non-linear or discriminatory - for example, two-part tariffs and Ramsey pricing. If these pricing schemes are ruled out, the principal alternatives are large government subsidies and the inefficiencies of fully allocated cost pricing. Why should the setting of access prices be any different?

rail, restructuring, vertical separation, access charge, discrimination, Russia

Abstract:
Railways restructuring takes place under very different circumstances and with very different goals in Western Europe, Central and Eastern Europe, and Russia. Observed improvements in productivity associated with vertical access and vertical separation in Western Europe are not certain to be replicated following similar restructuring in transition economies, especially if one takes account of the much higher shadow price on government subsidies in the latter. This paper describes in detail the current and proposed reforms in the railways of Central and Eastern Europe and Russia, analyzes the likely outcomes of reforms in the special economic, regulatory, and legal environments of these countries, and presents an alternative proposal for restructuring in Russia.

Rail, restructuring, access, vertical separation, deregulation, Russia, Central and Eastern Europe, transition

Abstract:
The Russian Federation is in the process of making major structural changes to its railway and electricity sectors. Both sectors will be at least partly vertically disintegrated, with the aim of creating competition in the "upstream" sector while maintaining state ownership and control of the monopoly "grid". This paper examines the details of reform and restructuring in the context of the international experience with reform and restructuring in these two sectors, and considers the role of the Ministry for Antimonopoly Policy in reform, both in the past as an "advocate for competition" within the government and in the future as the guarantor of nondiscriminatory access to the grids by non-integrated upstream producers.

Abstract:
Conventional wisdom argues that all commercial and economic competition between two daily newspapers stops when they merge their advertising and printing capabilities to form a joint operating agreement (JOA). Clearly the JOA acts a monopolist in the sale of advertising, but there are two forces that may constrain the JOA to sell more advertising than a profit maximizing single paper monopolist would find optimal. First, there is the possibility of what is sometimes termed "end game competition."

Disposition of assets from a JOA are often not determined until the JOA is near its termination date, and this may induce the weaker paper to maintain quality, both to improve its bargaining position and to keep open the possibility of remaining in the market as a competitor at the end of the JOA. Second, a daily paper arguably has to maintain a certain level of advertising and maintain a certain "look" and "feel" if it is to be considered a daily paper. This may constrain the JOA to sell more advertising and maintain a higher joint circulation than might be optimal for a single paper monopolist.

We present econometric evidence that shows JOAs to have ad rates that are closer to those of competitive dailies than to those of single paper and 2-edition monopolists.

Joint Operating Agreements, Newspaper Markets

Abstract:
Like other countries with vertically integrated, state-owned railroads, the Russian Federation has begun a process of corporate restructuring designed to lead to full vertical separation of train ownership from track operation. This model is popular with economists and reformers around the world, but it may not be the best available for Russia. This paper argues that preserving the vertical integration of Russian railroads while breaking them up horizontally, according to the model of railway reform adopted by Mexico, may, if done carefully, create geographic competition that could protect many shippers while not requiring more sophisticated regulatory oversight than may be available in Russia.

railroads, competition, regulation, reform, Russian Federation

Abstract:
The continuation of China's remarkable economic growth will depend on continued increases in electricity supply. China has commenced a program of electricity sector restructuring, with the announced aim of relying on markets and competition to provide incentives for attracting private investment and encouraging efficiency. However, a close examination of the generation markets being created suggests that truly free wholesale prices are likely to be both high and volatile. This may be the reason that these prices have not yet been freed - and it may not bode well for true market liberalization in the future.

electricity restructuring, competition, China

Abstract:
The spread of competition laws in Latin America has been accompanied, as in Central and Eastern Europe, by warnings against over-enforcement, and in particular against enforcement of provisions against the "abuse of a dominant position" in a market that may discourage legitimate, pro-competitive actions and strategies. We examine all instances of competition agency findings of abuse of dominance for eight Latin American countries over the period 2001-2003. We find a) that there have been relatively few such rulings in most countries, b) that roughly half of such rulings have been in traditionally "regulated industries," which suggests that the number of rulings may fall as sectoral regulatory agencies gain more capability and experience, c) that many rulings have arguably targeted government-imposed restrictions on competition as well as privately imposed restrictions, and d) that a majority of rulings have attacked exclusionary rather than exploitative abuses.

competition, antitrust, abuse, dominant position, regulated industries, Latin America

Abstract:
"Regulatory reform" once meant either "alternatives to rate-of-return regulation" or "the advantages of privatization". Now that a broad consensus has been reached on each of these two topics, at least among economists, one subject that has moved to center stage is "vertical restructuring". Many reform-minded economists have recommended policies of vertical separation between potentially competitive "upstream" sectors and their corresponding natural monopoly grid sectors. This paper suggests that the arguments in favor of vertical separation may be usefully grouped into three categories, and that of the three, the desire for a more competitive upstream sector is in many settings the least persuasive. The analysis is then applied to the proposals for restructuring the Korean railways and electricity sectors.

regulatory reform, vertical restructuring, vertical separation, railways, electricity, Korea

Abstract:
Does editorial competition boost newspaper circulation? If metropolitan daily newspapers constitute relevant product and geographic markets, then competition should foster improved quality and offer readers products that are differentiated in some dimensions and thus should result in higher circulation levels. Using 30 years of data on 67 of the 100 largest U.S. newspaper markets, we evaluate whether per household circulation for metropolitan daily newspapers is affected by competition from other metropolitan dailies published in the same MSA, from suburban dailies, from metropolitan dailies published in nearby metro markets, and from broadcast media. Our findings indicate that competition does substantially boost circulation, and that the boost varies by newspaper market structure: fully competitive markets get the largest boost, followed by editorially dependent markets, and then markets with newspaper joint operating agreements (i.e., with "editorial competition" only). In addition, we find that competition from suburban papers and metropolitan dailies from nearby markets have significant impacts on the circulations of metropolitan dailies, but that competition from radio broadcast and cable television is much weaker.

Newspaper markets, editorial competition, newspaper joint operating agreements

Abstract:
There is a growing consensus among economists that the most procompetitive strategy for restructuring public utility enterprises includes complete vertical separation of the network or grid portion of a sector from other parts of the sector where competition is to be created. Although exceptions to this rule are readily granted, it is generally considered that any alternative strategy may pay a high cost in terms of discriminatory access to the grid by non-integrated entrants into the new competitive sector. This consensus is somewhat surprising in light of the simultaneous growth of transactions cost economics, with its emphasis on the benefits of close vertical relationships - including vertical integration - in the face of complexity, unforeseeable contingencies, and problems with contract law enforcement. These issues are considered in the context of a Russian railways restructuring plan which may - or may not - involve complete vertical separation.

public utilities, restructuring, vertical separation, transactions cost economics, contract law enforcement, railways, Russia

Abstract:
The railways of Russia and the CEE countries - generally much more freight oriented, and much more important to their countries' economies, than those of Western Europe - are in the process of restructuring. In most cases the "vertical separation" reform model is being pursued, and reformers are seeking to introduce competition among freight train operators through the provision of "open access" to the monopoly infrastructure. This paper examines the degree to which competition has in fact been introduced, the terms under which it is taking place, and the characteristics of those private firms which have had some success in entering. As always, Russia is different.

railways, restructuring, competition, vertical separation, access charges, Central and Eastern Europe, Russia

Abstract:
Economists regularly decry the persistence with which firms set prices above marginal cost and thus, according to the economists, fail to maximize profits. But it is the economists who have it wrong - first, because variable accounting costs are not always a good proxy for marginal economic costs, but more importantly because in an industry with U-shaped cost curves, a firm at a long-run sustainable equilibrium faces increasing marginal costs - i.e., a rising shadow price on some constrained input - i.e., in general, a cost of capital. A corollary is that in such an industry the equilibrium mark-up over variable cost varies directly with the capital intensity of the firm.

Abstract:
Despite efforts made by European Commission to liberalize electricity markets and foster integration, there are still significant barriers to free competition. Until now, Romania was one of the countries that have been compliant to the European Union's electricity directives, being ahead of several older member states in this area. However, reforms have not started to pay out, suggesting that the model of combining state-owned non-competing generators with private/privatized distributors and suppliers may not be the best model of market deregulation. As a result, Romanian authorities have started to talk about plans to restructure the sector, by re-consolidating the unbundled generation companies and the state-owned distribution companies into one national energy company, aiming to create a national champion, competitive on the regional markets. However, these proposals are based on questionable economics and their adoption will have negative effects on market competition and, thus, on consumers.

electricity sector, liberalization, Romania, European Union

Abstract:
Freight railway enterprises in both Europe and North America are in the process of significant restructuring, with EC policy changes dictating new ownership, organization, and cooperation arrangements in Europe and a series of major mergers having already led to highly concentrated regional markets in the U.S. and Canada. Mergers, alliances, and organizational changes may raise important and complex issues regarding the level of competition facing goods shippers, with differing implications depending on the differing institutional contexts. This paper examines the competitive consequences of these developments in Europe and North America and suggests some lessons for other network industries.

railway, competition, mergers, alliances

Abstract:
Romania's competition law, in many ways similar to Articles 81 and 82 of the Treaty of Amsterdam, includes a unique provision that finds an abuse of a dominant position when a company exports at a price "below production cost" and sets a high domestic price "covering the difference." This paper examines what behavior this provision might target that is not already covered by the more standard provisions against both predatory pricing and excessively high pricing. It appears that the objective is to insert a United Brands type standard for measuring a fair price into the law, and the paper argues that the most likely outcome of the current trend of expanded enforcement of this provision will be to discourage exports.

competition, antitrust, abuse of dominance, price control, Romania, Central and Eastern Europe

Abstract:
One important issue facing reformers considering the restructuring of the seaports and freight railways sectors of a developing country is the creation of competition - or, alternatively, avoiding the creation or preservation of monopoly power. In seaports a crucial distinction is often that between intraport and interport competition; in freight railways, between competition among train operating companies over a monopoly track and competition among vertically integrated railways. In both cases it is useful to frame the issue as one of competition at the component level within an open system versus competition between closed systems. In both cases as well, the market definition paradigm suggested by the Horizontal Merger Guidelines of the U.S. competition agencies provides a useful framework for analysis.

competition, ports, railways, market definition, India

Abstract:
Books reviewed:

Vladimir Gimpelson and Douglas Lippoldt, The Russian Labor Market. Between Transition and Turmoil

G.A. Cornia and R. Paniccia, The Mortality Crisis in Transitional Economies

Giovanni Andrea Cornia and Vladimir Popov, (eds.) Transition and Institutions: The Experience of Gradual and Late Reformers

Peter Murrell, (ed.) Assessing the Value of Law in Transition Economies

Michael Schroeder, (ed.) The New Capital Markets in Central and Eastern Europe

Abstract:
Restructuring of the Russian railways system is well under way. Among the policies just now coming into practice are two that are standard in railways restructuring in other countries: the provision of access to the infrastructure by independent train operating companies, and assurances of non-discriminatory access terms for such companies. However, 'discrimination' - in the traditional economic sense - is a standard and often welfare-enhancing pricing strategy for the recovery of fixed costs in a sector, like railways, with declining average costs. If competition regulators are unable to distinguish between discrimination that harms competition and discrimination designed only to recover fixed costs, policy makers in Russia and elsewhere will face a choice between large government subsidies and large welfare losses. In these circumstances, other restructuring models should be considered.

Abstract:
The railways of Russia and the Central and Eastern European countries are in the process of restructuring. In most cases, the vertical separation reform model is being pursued, and reformers are seeking to introduce competition among freight train operators through the provision of open access to the monopoly infrastructure. This paper shows that, in two countries, Poland and Romania, a good deal of competition has been created by the entry of new freight operators, many of them either large shippers integrating upstream or former freight forwarders. However, in other countries, the incumbent freight operators retain virtually 100 percent of the market. In particular, Russia has taken only the very first steps toward creating competition in this sector, and new freight train operators face significant barriers to competing with the incumbent.